As another Black Friday looms and the run in to Christmas beyond, we can already say that 2018 has been the toughest retail year anyone can remember. First, Black Friday. This is a promotion whose effectiveness is questionable even in the USA. But at least in the US it has a little logic, following Thanksgiving with retail needing to get people spending again. Meanwhile, Christmas in the USA is traditionally a much less significant retail spending spike than here. Here, it comes along just as retailers need to start promoting their Christmas offers. It merely sucks spending forward at discounted prices, and therefore lower margins.
The UK adoption of Black Friday has been lemming-like. Do retailers discount regular stock and take the margin hit? Or do they buy special product (almost always lower margin and lower quality) and take the brand reputation hit? Stronger players have resisted it altogether and many that have succumbed have tried to limit the damage. However, retail is a business profoundly sensitive to YoY trading. Pressure from investors and stakeholders to deliver last year’s performance at the very least is intense. Right now is a great example of exactly that. The past 2/3 weeks trade have been awful – mild weather has hit business and a number of retailers who decided to opt out of Black Friday are already looking at cash flow and feeling the pressure. Some are having a last minute of mind, while others are wavering.
Then there is Christmas. In 35 years I have never known a Christmas trading period out of step with the preceding months. I said at the outset, this year has been the most challenging we have seen. Festive trading in 2017 and 2016 were both relatively positive, so the comps are quite demanding. As usual, many Christmas Trading Statements will be an exercise of selective reporting, economy with the truth and downright misleading, more so in non-foods than foods. But as ever, Christmas will not be cancelled. Earnings growth is finally starting to percolate through and will help mitigate growing political gloom and uncertainty. Weak sterling and fierce competition mean price inflation is trending down in both food and non-foods. I’m expecting both wings of the retail market to deliver spending growth around the 2.5% mark. So not a disaster but not enough to rescue the growing number of weaker players finding the intensity of trade and pace of change too quick.
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